Comparing and reviewing Life Insurance cover

5-minute read

Understanding the timing and process for reviewing life insurance is paramount, as it may provide financial support for loved ones in case of unexpected events.

Key events to review life insurance cover

Reviewing life insurance cover is a critical part of ensuring that the policy remains aligned with the insured's personal wishes. Below are some key events that should be considered when reviewing life insurance cover.

Major life events

Significant life events like marriage, parenthood, buying a home, or retirement introduce shifts in financial responsibilities that may impact the need for life insurance. As these milestones unfold, it is prudent to evaluate existing coverage and determine its adequacy in providing for the financial future of the insured's family.

Changes in income

If income changes significantly, whether it is an increase or decrease, it can impact the amount of coverage needed. If the family relies on the insured`s income, consider adjusting the sum insured amount of insurance including income protection, life, disability and critical illness, to reflect current earnings and financial obligations.

Changes in Mortgage or debt

Changes in debt levels impact how much life insurance one may need. The higher the amount of debt, the higher the insured amount needed to discharge or service this debt, should the unforeseen happen. Conversely if debt is reduced significantly, the insured amount may be able to be reduced. Note any change in insured levels will likely increase or decrease premiums – please speak to a financial adviser for more details.

Changes in health

If there have been improvements in health, it presents a chance to reassess the policy and explore the possibility of obtaining improved terms or reduced premiums.

Retirement planning

As retirement draws near, there may be a shift in financial goals and insurance requirements. Conducting a life insurance review can contribute to help ensure that the coverage aligns with post-retirement financial objectives, including supporting a partner, addressing end-of-life expenses, or leaving a legacy.

Divorce or separation

Life changes such as divorce or separation can have a significant impact on financial situations and dependants. It is crucial to review any life insurance to determine if adjustments are needed to accommodate these changes, including any potential changes to beneficiaries and payees.

How to review life insurance

Ensuring life insurance is right for one's circumstances

Factors that affect the amount of life insurance required depends on individual circumstances and the types of life insurance being considered. Most insurance policies will provide options to be able to adjust the policy so that the cover and premiums are aligned to the insured’s objectives. 

The following explores various factors that might be taken into account when calculating life insurance premiums.

Life insurance

Benefits from a life insurance policy are paid on the death of the person insured, so it is important to consider the needs of any dependants and beneficiaries. Some things to consider are any outstanding debts, loss of income over an expected lifetime, education expenses, and funeral expenses. These financial commitments may be offset by any existing life insurance, investments or savings. 

Total and permanent disability (TPD) insurance

TPD insurance offers policyholders a lump sum payment when facing total and permanent disability, determined by criteria like any or own occupation, or Activities of Daily Living (ADL), as outlined in the policy document. The lump sum allows the insured individual the flexibility to utilise the funds as they see fit. This may involve activities such as repaying debts, making home modifications for accessibility, and covering medical expenses, including ongoing rehabilitation. This aids in giving peace of mind by reducing the financial burden.

Critical Illness insurance (Trauma cover)

Critical illness insurance, also known as trauma insurance, is a type of life insurance cover that provides a financial benefit if the condition and severity are covered by the policy. If a benefit is payable, it can assist financially in covering daily living expenses, enable the insured individual to access medical treatment and explore options related to their illness, all while supporting the quality of life for the insured's family during the treatment.

Income protection insurance

Income protection insurance works by offering a replacement income when the insured individual is unable to earn due to injury or illness. Benefits are usually paid as monthly payments representing a portion of pre-disability income. The specific percentage of income paid as a monthly benefit is contingent upon the pre-disability earnings, with many income protection policies typically providing a benefit of up to 70%. During the claims process, the monthly benefit amount is assessed, based on the lesser of the insured amount and a percentage of the individual's income at the time of the claim. Depending on the income protection policy or insurer, the coverage may encompass a contribution to superannuation, in addition to the benefit paid to the insured.

Managing life insurance premiums

Premiums are not fixed and can increase. There are two types of premium options - Stepped and Level. Stepped premiums are based on the insured’s age and generally increase at the policy anniversary date each year. Level premiums have the cost of increases associated with age spread over several years and are based on the insured’s age at the policy start date. This means the costs start out higher than Stepped premiums, but depending on how long the policy is held for, the cost may be lower at some point in the future. Both types of premiums may also increase if the insurer adjusts its premiums due to market conditions or other factors that may affect the policy including discounts or adjustments for inflation (CPI). 

It is best to compare life insurance policies with different life insurance providers to find the right policy that fits individual circumstances.

Policy term

Life insurance policies continue for the term of the policy with an annual notification from the life insurer explaining the coverage, premiums, and any special conditions on the policy. This is an excellent time to review the cover. Check if there are any changes in the policy terms, premiums, or benefits. Evaluate if the policy still aligns with current needs and financial goals.

Regularly reviewing life insurance is imperative to maintain relevant coverage amounts aligned with personal circumstances and financial goals. Life is constantly changing and so are insurance needs. By assessing one's policy at these pivotal intervals, informed decisions can be made to help ensure adequate provision for loved ones and ensure that insurance remains an integral component of one's financial planning.